Gulf Badr Group (Tanzania) Limited vs Commissioner General, Tanzania Revenue Authority (Civil Appeal No. 212 of 2025) [2026] TZCA 603 (22 May 2026)

IN THE COURT OF APPEAL OF TANZANIA AT ARUSHA (CORAM: LILA. J.A., RUMANYIKA. 3.A. And MANSOOR. J.A/ ) CIVIL APPEAL NO. 212 OF 2025 GULF BADR GROUP (TANZANIA) LIMITED .................................... APPELLANT VERSUS COMMISSIONER GENERAL, TANZANIA REVENUE AUTHORITY................................................RESPONDENT (Appeal from the Judgement and Decree of the Tax Revenue Appeals Tribunal) f Mutunai. Chairperson.) Dated the 11th day of July, 2025 in Tax Appeal No. 180 of 2024 JUDGEMENT OF THE COURT 3rd December 2025 & 22n d May 2026 MANSOOR, J.A.: The appellant, Gulf Badr Group (Tanzania) Limited is a shipping agent of Evergreen Marine (Singapore) PTE Limited, ('Evergreen'), a non resident shipping line. Evergreen provides services for international carriage of goods to its customers in Tanzania. In the year 2023, the appellant was assessed by the Commissioner General of Tanzania Revenue Authority, "the Respondent" for Value Added Tax "VAT" on demurrage charges collected for the year 2021 amounting to TZS 192,522,251.26, being TZS 175,414,119.03 as principal and TZS 17,108,132.23. 23 as interest on late payment of tax. The appellant contested the assessment for the reasons that, it acted as an agent for Evergreen and that demurrage is clearly a penalty charged against the shipper or consignee for delaying the carrier equipment or vessel beyond the pre agreed time. That, the demurrage collected by the foreign shipping line from the importers do not constitute a consideration for supply of service under the Value Added Tax Act, 2014 "VATA". That, in any case, demurrage charges on supply of ancillary transport services of local goods are zero rated under section 59 (3) (a) of VATA. That, it was wrong for the respondent to charge interests on late payment of VAT, since the demurrage charges are not vatable. The respondent rejected the objection and maintained its position that the appellant was liable to pay the assessed taxes on the demurrage charges collected by it on behalf of its principal, Evergreen, since the demurrage was paid by an importer in Tanzania to a shipping agent in Tanzania and for the services provided in Tanzania. The respondent also insisted that payment by an importer in Tanzania to an agent in Tanzania for ancillary transport services is not an integral part of the international transport which is an exempt service under section 59 (3) (a) of VATA, now section 61 (3) (a) of the Value Added Tax Act, Cap 148 R.E 2023. The appellant, being dissatisfied with the decision of the respondent, filed an appeal to the Tax Revenue Appeals Board "the Board" which was unsuccessful. Again, the appellant filed the second appeal before the Tax Revenue Appeals Tribunal "Tribunal", which also was unsuccessful. In its judgement dated 11 July 2025, the Tribunal dismissed the appellant's appeal rejecting the appellant's arguments in all three points. The appellant argued that, one, it was wrong to charge VAT on demurrage charges since demurrage charges are penalties for delaying the carrier equipment or vessel beyond the pre agreed time and it is not a consideration for rendering taxable services, therefore cannot amount to taxable supplies. Two, demurrage is a penalty for late return of ocean containers and cannot be subjected to payment of VAT as it is not a taxable supply of goods or services. Three, demurrage charges are an integral part of international transport services and thus zero rated under section 59 (3) (a) of VATA, since under the bill of lading which is a contract of carriage of goods between the shipper and the importer/consignee covers the entire transport activities from the point of purchase until the goods are delivered to the consignee and the empty containers are returned to the shipper. On the other hand, the Tribunal agreed with the position taken by the respondent that, demurrage charges were akin to rental income for keeping the empty containers beyond the time allowed under Regulation 3 of the Tanzania (Shipping Agencies) Regulations G.l\l. 339 of 2018. The Tribunal agreed also with the position of the law stated in CMA CGM (K) Limited vs Commissioner of Domestic Taxes, Tax Appeal No. 89 of 2019, a decision of the High Court of Kenya that, demurrage charges is akin to rental charges and it is paid by an importer to the shipper for accessing the services of the assets within Tanzania. That it is a consideration for taxable services charged by a taxable person. The respondent argued that, since storage of empty containers beyond the time allowed is not an integral part of international transport services, the charges are not zero rated under section 59 (3) of VATA. Thus, the Tribunal held that, the respondent's decisions in charging VAT on demurrage was correct and supported in law. Aggrieved by the decision of the Tribunal, the appellant filed a memorandum of appeal raising three grounds, that: 1. The Honourable Tax Revenue Appeals Tribunal erred in iaw by holding that the demurrage charges are a taxable supply in accordance with section 3 (1) of VATA; 2. The Honourable Tax Revenue Appeals Tribunal erred in law by holding that demurrage charges are not zero-rated supplies pursuant to section 59 (3) (e) of VATA; 3. The Honourable Tax Revenue Appeals Tribunal erred in law by holding that imposition of interests on late tax payments was correctly issued. At the hearing of the appeal on 3rd December 2025, Mr. Rosalian Jackson and Mr. Hamisi Seleman, learned advocates appeared for the appellant, while Ms. Adelina Ngugi, Mr. Andrew Kombo and Mr. Dathan Mafuru, learned State Attorneys appeared for the Respondent. The arguments in support of the appeal and against the appeal have been canvassed by way of written submissions. Since the submissions restate the parties' positions, we have already summarized above, we will not repeat the same but make relevant references in our determination of the issues below. The issues that require determination in this appeal are three, one whether the demurrage charges are taxable supply under section 3 (1) of the VATA, two, whether the demurrage charges are zero rated supplies under section 59 (3) (e) of VATA, and three, which is consequential, is whether the respondent was correct to charge interests on late payments of taxes. With regard to the issue of whether demurrage charges are taxable supplies under section 3(1) of VATA or penalties falling outside the scope of section 3 (1) of VATA, indeed section 3(1) of VATA provides for imposition of Value Added Tax on taxable supplies and taxable imports. It provides: 3 - (1) Value added tax shall be imposed and payable on taxable supplies and taxable imports. Taxable supplies are alt supplies carried out in Tanzania Mainland and Zanzibar by a taxable person in the course or furtherance of an economic activity, except those services expressly exempted under the VATA. The issue here is whether demurrage charges are a supply of service for a consideration thus a taxable supply or penalties for keeping the equipment beyond the agreed time. While the respondent defines demurrage as consideration or remuneration for a service for keeping or storage of goods/items or consignments payable by a consignee to the shipper beyond the number of days allowed by a contract, the appellant defines it as a penalty for keeping the empty containers or shipping equipment beyond the agreed time. The respondent's reliance on a definition of demurrage is on the case of CMA CGM (K) Limited vs Commissioner of Domestic Taxes, (supra), in which demurrage was defined as fees in the nature of rent for the use of property of the international carrier. The respondent's argument is that storage of goods/items or even ships beyond the agreed period is a supply of service within Tanzania by a taxable person in the course of its business or for a furtherance of an economic activity, thus chargeable with Value Added Tax. The respondent supports the findings of the Tribunal that, demurrage charges are not penalties for breach of contract but constitutes consideration for continued access and use of a commercial asset for storing the goods beyond the free period, it is a service offered by a shipping agent to the consignees for the use of the commercial asset beyond the agreed time and cannot be a penalty for breach of contract. We noted as argued by the parties that demurrage has not been defined in the VATA but borrowing a leaf from other statutes such as the Tanzania Shipping (Shipping Agencies) Regulations, G.N 339 of 2018 and the Fertilizer (Bulk Procurement) Regulations, 2017 G.N 49 of 2017, demurrage charges has been defined as late delivery penalties or penalty for delaying the carrier's equipment or vessel beyond pre agreed time. It is a charge for late return of containers or equipment. Again, as defined in the Maritime Law Book, Christopher Hill (Fifth Edition), 2003 at page 224 as follows: "...a penalty imposed upon the charterer for exceeding the laytime period and delaying the ship beyond the agreed laytime in order to complete loading or discharging." We further note that the Tanzania (Shipping Agencies) Regulations, G.N. No. 339 of 2018, treat demurrage primarily as a charge arising from delay in returning equipment, consistent with industry practice rather than as a separate rental or storage service. This aligns with the position that demurrage compensates the carrier for loss of use of its asset due to the consignee's breach of the agreed free period in the contract of carriage. It is not a voluntary payment for an additional service but a contractual remedy for breach. When dealing with shipping business/industry, the definitions of the common shipping terms or vocabulary used in the industry must be construed in line with the operations of the shipping industry itself to help streamline international shipping trade. Words such as bill of lading, CIF or FOB as well as demurrage have been defined internationally by International Chamber of Commerce (Incoterms) and cannot be construed inconsistent with the scope of the international shipping trade itself. Demurrage as defined in the shipping industry is a penalty fee charged by either the port or shipping line when a container is not either picked up on the agreed timeline or returned within the allowed free days. Therefore, what is received by the port or shipping line is a penalty fee and not a consideration for rendering taxable service. The Tribunal erred when it held that demurrage is a consideration for continued access to a commercial asset. This holding is contrary to what it is in international shipping business as in international shipping, a charterer is allocated time 8 for loading and discharging the cargo without additional payment than what was agreed in the bill of lading but once the time allowed or agreed exceeds, the charterer is liable to pay demurrage which is a penalty for delaying either picking up the containers or returning the containers beyond the agreed time. The demurrage fees charged and received by the appellant from the consignees for delaying to return the containers within the pre agreed time in the bill of lading is a penalty. A penalty for breach of contract is not a payment for service, it is a penalty for delaying return of the containers. As held in the case referred to by the appellant, C-295/17 Meo Servigos de Comunica^oes e Multimedia SA v Autoridade Tributaria e Aduaneira, the European Court of Justice (ECJ) ruled that, "compensation paid for early termination of a contract is subject to VAT it constitutes consideration for a service. However, if the compensation is purely a penalty for breach of contract, it is not subject to VAT." Again, in a Kenyan case of Commissioner of Domestic Taxes v Gulf Badr Group (Kenya) Limited, High Court Income Tax Appeal No. E141 of 2023, and in Gulf Badr Group (Kenya) Limited v Commissioner of Domestic Taxes, Tax Appeals Tribunal, Appeal No. 896 of 2022, it was held that, demurrage constitutes a penalty imposed for exceeding the period permitted for taking delivery of goods or for late return of transport equipment. As such, it does not amount to taxable income. That, demurrage represents a compensatory or penal charge rather than a payment for services rendered, therefore demurrage cannot be interpreted through implication or by overstretching to be a taxable income for service rendered unless it is expressly provided for in the statute. Taking inspiration from the holding of the three foreign cases above on the subject and flowing from the above arguments, it is clear that payment for demurrage do not constitute payment of consideration for provision of any service but a penalty for compensating a party for loss of earnings. As such, we agree with the appellant that demurrage does not fall within the scope of taxable supply under the VATA. The Tribunal erred in law holding that demurrage charges are a taxable supply under section 3(1) of VATA. Regarding the second issue on whether demurrage charges are zero rated under section 59 (3) of VATA. The issue has been tackled in the first issue hereinabove as we have already held that demurrage charges being penalty and not consideration for taxable services, they do not fall under the scope of VAT. 10 However, for avoidance of doubt, we hold that, demurrage does not constitute an ancillary international transport service as demurrage charges are penalties arising from international transport services. Under the VATA, supply of international transport services is zero rated as provided in section 61 (3) (a) of the Act, which reads: Section 61(3): The following supplies of services shall be zero- rated- (a) a supply of international transport services; The international transport services have been defined under section 2 (1) of VATA as services other than ancillary transport services of transporting passengers or goods by roads, rail, water or air from a place outside Tanzania to another place or vice versa. Demurrage charges being part of international transport services included in the bill of lading for cross boarder transportation of goods is zero rated under section 61 (3) (a) of the VATA. Demurrage arises in the bill of lading which is a contract of carriage by sea for international transport service, hence demurrage charges are not ancillary to international transport service but forms an integral part of international transport services covered as an item in the bill of lading. See Sunshine Furniture Co. Ltd. vs Maersk (China) Shipping Co. Ltd. & Another, Civil Appeal No. 98 of 2016 (unreported), and by inspiration, Prime Aloyce vs Malawi Cargo ii Centres Ltd (Commercial Case No. 71 of 2009) [2010] TZHCComD 21 (30 September 2010). We thus agree with the appellant's arguments that demurrage charges are not an independent domestic transaction but an integral part of the contractual terms contained in the bill of lading governing international transport services. It is a contingent contractual term tied to the shipping agreement as part of the contract for international transport services. We thus hold that the Tribunal erred in law by holding that demurrage charges are not zero-rated supplies pursuant to section 61 (3) a) of VATA. On interest for late payment of taxes, this issue becomes inconsequential. We have already held that the respondent incorrectly raised an assessment for payment of VAT on demurrage charges which are not taxable supplies, then there will be no valid interests chargeable on an invalid tax assessment. Thus, the Tribunal erred in law by holding that the imposition of interest on late payment of tax was correctly issued. In view of the above, the appeal is meritorious in its totality, it is hereby allowed. The Judgement and Orders passed by the Tribunal be and hereby set aside. Consequently, the assessed tax for Value Added 12 Tax "VAT" on demurrage charges for the year 2021 amounting to TZS 192,522,251.26, being TZS 175,414,119.03 as principal and TZS 17,108,132.23 as interest on late payment of tax be and is hereby set aside. Each party shall bear its own costs. DATED at DODOMA this 20th day of May 2026. S. A. LILA JUSTICE OF APPEAL S. M. RUMANYIKA JUSTICE OF APPEAL L. A. MANSOOR JUSTICE OF APPEAL Judgment delivered virtually, this 22n d day of May, 2026 in the presence of Mr. Hamis Selemani, Mr. Loserian Manaiya, learned counsels for the Appellant, Mr. Andrew Francis, learned State Attorney for the respondent and Mr. John Gelvas, Court clerk is hereby certified as a true copy o f" 1 ------